America’s strong economy isn’t shielded from the impact of Yemeni operations
When American ships were added to the target list of the Yemeni armed forces in response to the US-British aggression on Yemen, some American analysts argued that the US economy would not be affected by these operations, betting on the ability of American power to deter Yemen, and that it would only be a few weeks before the situation in the Red Sea would return to normal, and in the worst-case scenario, the US Navy would escort ships heading to the US.
Zakaria Al-Sharabi:
Global companies like Maersk fell into the trap of relying on the illusion of American power. With the start of the aggression against Yemen, Maersk announced that it would resume navigation in the Red Sea and attempted to sail a ship towards Israel under the protection of American warships, but that didn’t protect it from being targeted, so it was forced to suspend its operations again indefinitely. As for America, it failed to protect its warships, which makes us search for the extent of the impact that the Yemeni operations caused on the reality of the American economy.
It should be noted that economic effects are an accumulative process that continues and intensifies as long as the problem persists. In the field of maritime shipping, the problems that ships are exposed to, known to Americans as the “black swan” events, gradually have their effects and become more prominent during peak seasons when demand increases, and maritime congestion reduces the supply. We are currently in the peak season, so what do the numbers say?
The American newspaper “The Wall Street Journal” confirms that the effects of Yemeni operations have become tangible in distant ports, where disturbances lead to longer journey times, ships being taken off schedules, and increased pressure on the need for maritime containers.
According to the newspaper, “These obstacles complicate the logistics operations for manufactured and retail goods, but importers and exporters say they are extremely concerned that these hurdles may expand with increasing demand in the coming months before the busy peak shipping season. This may lead to higher shipping prices, which have already risen to levels close to those seen during the pandemic when companies competed for limited spaces on ships and the spot market rates for a 40-foot container exceeded $20,000.”
While the global shipping network tried to demonstrate flexibility during the first quarter of this year, it began to collapse last month, and the cost of renting maritime containers increased significantly. According to the Container xChange website, an online marketplace for maritime containers, the average shipping container price in Singapore rose by 26% in May compared to October, before the start of Yemeni operations. Rental rates for containers from Shanghai to Los Angeles and Long Beach in May reached nearly double the November rate.
According to the American network CNBC, instant sea freight rates from the Far East to the US have been increasing by a monthly range of 36% to 41%. Shipping companies have also raised additional charges, known as general rate increases, by approximately 140%, according to CNBC’s supply chain heatmap. These increased costs have raised the price of a 40-foot container to around $12,000.
The US has fallen into the trap of its own doing. In order for the Israelis not to pay several additional shekels on product prices, Washington has turned the problem into a global one. It militarized the Red Sea and portrayed the threat in the Red Sea as a threat to global trade as a whole, not just limited to Israel. This pushed shipping companies to avoid the Red Sea, resulting in increased transit times for each journey. Meeting the demand required more ships and more containers. While shipping a container from China to Europe used to take between 7 and 10 days, it now takes between 21 and 30 days, with increased fuel costs and expenses amounting to a million dollars per ship, according to a report by the U.S. Defense Intelligence Agency.
According to CNBC, Paul Brasher, Vice President of Global Supply Chain at ITL Logistics, said, “Container shortages and limited vessel capacity have forced shippers to turn to the spot market to find equipment to load at origin… This is driving prices significantly higher to levels not seen since the post-COVID crisis two years ago.” Brasher added that shipping is also suffering from congestion at port terminals due to long waiting times and a scarcity of empty containers for loading goods.
Continued inflation and a significant rise in prices:
Prices of many products in the United States have risen due to several factors, including the Yemeni operations. The uncertainty surrounding the resolution of the problem suggests that inflation levels will continue to rise, leading to further price hikes in the coming months. It is expected that the cost of shipping a single container from Shanghai to the U.S. East Coast will reach $20,000 or even more than that.
According to an analysis published in The National Interest in May, the full impact of the Yemeni operations weighs heavily on American consumers, and the increased shipping costs disproportionately burden sectors with slim profit margins, such as clothing and chemicals, as well as shipping companies themselves.
The analysis indicates that major retailers like H&M, Target, and Walmart are feeling the effects of disruptions in the Red Sea. Similarly, producers and retailers with narrow profit margins who cannot ship products earlier than usual have limited options to adapt to the increasing shipping costs and disruptions in the supply chain. They have to pass on the additional cost to the consumer, contributing to pre-existing inflationary pressures.
The impact is not limited to retailers but extends to producers in factories and storage warehouses, putting pressure on the trucking and railway industries.
According to The New York Times, some shipping industry professionals are referring to the crisis in the Red Sea as “Covid Junior,” likening it to the disruptions experienced during the pandemic. Importers who rely on maritime shipping are facing a return to the same supply constraints they experienced during that time. Shipping companies are frequently canceling confirmed bookings and demanding special handling fees and premium service charges as a condition for obtaining containers on ships.
“It’s a battle to get containers. It’s frustrating,” said David Raish, owner of the MSRF company in Chicago, which assembles gift baskets for Walmart and other giant department store chains.
According to the newspaper, suppliers complain that transportation companies are imposing escalating “peak-season surcharges” that can add up to $2,400 per container. Despite this, shipping companies often claim they don’t have enough space on their vessels, forcing suppliers to resort to the spot market, where prices fluctuate and have now reached $8,000.
Rise in air freight prices:
Since May, retailers in the US have panicked as the peak season, which extends from June to September, approaches, and in an effort to meet the season, they have turned to placing orders for the Christmas shopping season to be able to commit to a supply that matches the volume of demand.
According to the Wall Street Journal, importers in the US have been shipping their orders via air freight at very high costs so as not to cause delays. However, the problem is that the aviation sector is not prepared to replace maritime shipping, not even to cover a small portion of it, and the pressure on this sector quickly appeared, and air freight prices reached red levels, according to a report issued by Scan Global Logistics.
In an article published in The Loadstar on June 19, Pierre van der Stichel, Deputy Head of Freight at Charter Broker Air Partner, explained that it would be extremely difficult, if not impossible, to find capacity on large aircraft with global flights, adding, “I have not seen the industry so volatile in nearly 30 years of working in the shipping field.”
Lack of confidence in American power:
The continuation of Yemeni operations against American, Israeli, and British ships and the expansion of the scope of attacks for more than six months have led to a decline in hopes of a quick solution to the crisis. According to the American Bloomberg Agency, the escalation of Yemeni operations indicates that high shipping costs are here to stay, and the increasing effectiveness of these operations reveals the limits of the U.S.-led coalition’s capabilities.
Goetz Albrand, President of Ocean Freight at DHL Global Forwarding Americas, is not optimistic that shipping prices will decrease anytime soon.
The biggest fear now, the New York Times reports, is that floating bottlenecks may become a self-fulfilling prophecy. As importers come to terms with rising shipping costs and port congestion, they are placing orders early. This could lead to a significant increase in incoming shipments to major ports such as Los Angeles, Newark, and Savannah, Georgia, exceeding the capacity of trucks, railways, and warehouses.
The path to ending these concerns and returning navigation to its normal state in the Red Sea is to end the Israeli aggression against the Gaza Strip, lift the blockade, and allow the entry of necessary food and medicine for the people of Gaza. Without that, the operations may escalate further and on a larger scale, as confirmed by Sana’a.